The best way you can validate a breakout of trend line is through the use of MACD indicator. The MACD indicator is made up of a MACD line, a Trigger line and a histogram that shows the difference between these 2 lines. For the confirmation of trend line, you simply have to make use of the default MACD setting in your trading platform and you can adjust the sensitivity to suit your trading style.
Trendline Breakout Confirmation
In order to validate a breakout, you must make use of the histogram of this indicator. When you see the price breaking below a trend line, you should check your MACD to see if the histogram flips to the downside. If it did not, this is usually an indication that the breakout is a fake out and you should refrain from entering a trade. If the breakout is validated by the MACD flipping to the other side, you can then enter a trade. Do not rush into a trade when you see the histogram flips to the other side and you should always wait for the second bar to be formed on the MACD before confirming the flip over. There are times where the histogram may flip to the other side but eventually flip back up in the end invalidating your breakout.
Breakout Confirmation by MACD
After the trend line break has been validated, the price moves back to retest the support trend line and then moves up.
Real Breakout and False Breakout Confirmation
You can also apply this technique to triangle breakout or any other breakout strategy. Fake out is sometime that is very common in trading and you must definitely try to minimise your losses due to it. Although this method is able to help you minimise your losses due to fake out, it is not possible to be accurate 100% of the time. There is nothing 100% about trading and you simply have to accept losses as part of the game.
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